Updated from 10:02 a.m. EDT
got hammered in early trading Thursday after it warned of lower-than-expected earnings for the current and upcoming quarters and announced plans to cut 5% of its workforce, consolidate its U.S. toy group and close three facilities in an effort to improve profits.
Hasbro shares finished Thursday regular trading down $1.56, or 13%, at $10.06, after trading as low as $9, a 52-week low.
The Pawtucket, R.I.-based company said it has suffered from sliding domestic sales of Pokeman trading cards and weaker worldwide demand for Star Wars figures. Its interactive games business also continues to perform below reduced expectations. Slower sales, combined with an ongoing shortage of electronics components and losses from foreign exchange will likely lead to lower-than-expected earnings in both the third and fourth quarters, said company officials.
The company now expects to report earnings of 6 cents to 10 cents a share before charges for the third quarter, which ended last month. That's less than one-third the consensus estimate of 32 cents a share among analysts surveyed by
First Call/ Thomson Financial
Hasbro also expects to take a pretax charge of $70 million from severance payments and lease terminations, primarily in the fourth quarter. The toy company said it plans to review its 2001 product line and discontinue some products, resulting in pretax charges of up to $100 million in the fourth quarter. Hasbro said restructuring and overhead cost reductions will start generating savings in 2001, and should offset the charges in less than three years.
"Improving Hasbro's profitability is our highest priority," Alan Hassenfeld, chairman and chief executive, said in a statement.
Though the retail market is softer overall this year, Melissa Williams, analyst at
Gerard Klauer Mattison & Co.
, said she was surprised by the magnitude of Hasbro's anticipated shortfall in its earnings for the last half of the year.
Hasbro has revised its full-year 2000 earnings estimates to between 40 cents and 50 cents per share, before restructuring and other charges. That's far short analysts' consensus estimate of $1.04 a share, according to a recent
First Call/Thomson Financial
While Williams has maintained a "buy" rating on the stock, she said the recommendation is based on the company's valuation. She is reviewing her long-term target price for the stock after Thursday's announcement. The firm does not have an underwriting relationship with Hasbro.
Williams applauded the company's efforts to focus more on its core business, including board games, Tiger Electronics and its well-known U.S. brands like Playskool, rather than relying on revenues from licensed products like Star Wars and Pokeman merchandise that have not performed as well as expected this year.
Alfred Verrecchia, Hasbro's president and chief operating officer, said the company must focus on trimming costs in product development, sales and marketing, and administrative expenses. He added that Hasbro has already generated significant operating efficiencies and savings by consolidating our global manufacturing operations in recent years.
The company plans to close toy facilities in Cincinnati, Ohio, and two locations in California, and consolidate its U.S. toy group in Rhode Island. It also expects to cut up to 550 jobs worldwide, and to discontinue poorly performing product lines.
"I am confident we are making the right moves to help make Hasbro leaner and more consistently profitable to our shareholders," added Hassenfeld.